Business group: Beijing should curb state industry

BEIJING 
A European business group appealed to China on Thursday to curb state industry as a new generation of Communist Party leaders takes power, adding to warnings the government-dominated economy needs sweeping reforms to keep growth high.

"Incremental and piecemeal reforms must give way to urgent and comprehensive reform," the European Union Chamber of Commerce in China said in a report. "These changes are now urgently required not only for China, but also for global economic growth."

The World Bank and other government advisers say China needs to rein in state companies and promote free-market competition to keep the world's second-largest economy growing strongly. They say without that, Chinese income growth could stall.

The decline in China's growth to a three-year low of 7.6 percent in the second quarter prompted calls for faster change. Analysts expect no major steps until after new party leaders are installed in a once-a-decade transition in October. Even then, the scale of possible changes is unclear.

"On the eve of a generational leadership transition, China holds a historic opportunity to raise its economy to a new level," the European Chamber said. "A prompt and fundamental shift is required to carry out necessary economic rebalancing."

Private companies that have flourished under market-style reforms begun in 1979 create most of China's new wealth and jobs. But state companies that benefit from monopolies and access to low-cost loans and resources dominate industries including energy, banking and telecommunications.

The European Chamber joined other reform advocates in warning heavy reliance on state industry was leading to too much investment in unneeded facilities and poor productivity. It said rebalancing the economy would require giving foreign and Chinese private companies equal treatment with state enterprises in market access, financing and technology policies.

"Reforms to substantively reduce state involvement in the business environment and to give full play to market principles are needed to unleash the entrepreneurial potential of China's private industry," the European Chamber said.

China's leaders have promised repeatedly to support entrepreneurs but most bank lending goes to state companies. The stimulus after the 2008 global crisis went largely to government companies, further entrenching favored enterprises while thousands of private companies were forced out of business.

A report in February by the World Bank and a Chinese Cabinet think tank urged similar steps, saying the ruling party's goal of creating a high-income society "will demand a new development strategy."